The collision of geopolitical risks and a technology super-cycle is reshaping the current market's trading logic. Tony Pasquariello, head of Goldman Sachs' hedge fund business, stated in a latest market assessment that although the S&P 500 hit another record high this week, the trading environment remains challenging.
Pasquariello warned that market long positions have accumulated significantly over the past month, but the buying intensity from both systematic funds and actively managed funds has noticeably weakened. The狂热demand for call options has also receded.
Meanwhile,潜在inflation risks are re-emerging. He explicitly advised investors to hold long positions in equities while also allocating to long 10-year Treasury Inflation-Protected Securities (TIPS) and upside exposure in deferred Brent crude oil to hedge against potential risks.
**Cooling Buying Interest Masks Trading Difficulties Despite S&P Record** Despite the S&P 500 reaching a new all-time high this week, Pasquariello's assessment of the market's internal structure has turned more cautious. He pointed out that while overall long positions have increased significantly over the past month, the quality of the buying has subtly changed. Buying intensity from both systematic quantitative funds and discretionary funds has weakened noticeably, and the previous狂热pursuit of call options is also cooling down.
Structurally, Pasquariello referenced a framework from Goldman Sachs strategist Ben Snider, outlining a potential path for the S&P 500 to rise to 7600 points, and conducted a mark-to-market assessment of current positions. He specifically noted that with the month-end approaching, portfolio rebalancing will generate substantial selling pressure in futures markets. The baton is now being passed to the household and corporate sectors, and their ability to absorb this pressure will be a key variable.
He concluded that it remains unclear where the asymmetric opportunities lie, therefore he maintains an overall strategy of "spot up, volatility up," but emphasized that the latter part of this combination requires active, frequent trading operations to achieve.
**Japanese and South Korean Stocks Hit Record Highs, Led by Tech and Semiconductors** Asia-Pacific markets also delivered strong performances this week. The Nikkei 225 has fully recovered from its 13% plunge in March to reach a new historical high. South Korea's KOSPI has also completely rebounded from its 19% decline in March, similarly setting a new record.
Pasquariello specifically highlighted that the ratio of the Nikkei 225 to the Topix (TOPIX) index has also reached a new high, driven primarily by technology stocks, especially the semiconductor sector. He suggested investors maintain exposure to the Japanese market by holding upside call options, citing the market's characteristic of "spot up, volatility up"联动.
Regarding South Korea, Goldman Sachs Asia-Pacific strategist Tim Moe now forecasts KOSPI component companies to achieve earnings per share growth of 220% this year, corresponding to a raised target price of 8000 points, implying a potential upside of approximately 24% from current levels. The Goldman Sachs trading desk favors capturing this opportunity through EWY call spread strategies.
**Potential Inflation Threat Should Not Be Ignored, Recommends TIPS and Oil Upside Exposure** On the topic of inflation, Pasquariello quoted a common saying in the commodity markets: "When you start to run short of something, inflation arrives."
He indicated that the AI capital expenditure cycle is already straining supplies of upstream inputs, and the evolution of the current geopolitical situation could further lead to shortages in various refined products and industrial commodities. He stated that while a repeat of the 2022-style inflation shock is unlikely, the risk of潜在inflation posing challenges to risk assets cannot be ignored.
At a strategic level, Pasquariello recommended pairing equity long positions with the following two types of hedging tools: 1. Long the 10-year TIPS breakeven inflation rate. 2. Hold long call positions in deferred Brent crude oil. He noted that the middle and back end of the oil futures curve have recently shown particular strength, with deferred Brent crude breaking above recent highs.
**AI Capex Super-Cycle Drives Sustained Funds into Power and Data Center Sectors** Regarding market fund flows, Pasquariello observed that capital is accelerating its concentration into power infrastructure and AI data center-related assets. He referenced Goldman's "Power Up America" thematic basket, pointing out that the pursuit of power demand has evolved from a "long-term demand narrative" to a "strategic necessity," with fund inflows strengthening over the past two months.
Concurrently, the recent performance of Goldman's AI data center-related stock basket is a direct market reflection of the "capital expenditure super-cycle." The momentum factor is also performing prominently in this context. Pasquariello noted that despite several unsettling fluctuations over the past few months, staying long momentum has "unquestionably been the right call," and the performance of Goldman's flagship high-momentum versus low-momentum pair trade has been "breathtaking." Within the tech sector, the recent monthly returns of Goldman's TMT momentum stock basket have also been impressive.
Looking ahead, Pasquariello admitted that it is not easy to determine which side holds the asymmetric advantage in the market currently. Therefore, he maintains an overall positioning of "spot up, volatility up," but also acknowledged that the latter part relies on proactive and active trading operations to realize.
Comments